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Real Estate mortgage ?

Old 07-31-2020, 07:00 AM
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Default Real Estate mortgage ?

First off this pertains to the state of PA. Found out an older woman on my street was moving to be with family. I started to think it would be a good house for my son. After speaking to the woman, I found out she is in foreclosure with a reverse mortgage company. She showed me her June mortgage statement. It stated the status of the loan was "foreclosure tax and insurance" Default balance $49,800. My home, the same style, the taxes have been from $3500 to about $5000 today after 13 years. Seems like a lot of money for the default amount. Either she hasn't paid taxes in quite awhile or the penalty and interest really added up. Anyhow. I think she has been given a date to vacate of Sept 14th. With the mortgage status "foreclosure" would I be able to negotiate at the present time to purchase the house, or does the foreclosure have to take place. I do have a call into a real estate atty who has helped me before, and I would hire to do this deal if it's worth it. While I wait for a return call, I thought I'd run the ? by the THT gang.
Old 07-31-2020, 07:06 AM
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I'm a fairly active RE investor and I dont give foreclosures any consideration - under at least most circumstances is a months long process before one actually comes to market. That said if you have a good agent in your hip pocket they can give you a leg uo in the buying public.

Be advised foreclosed houses tend to be neglected and often have multiple liens that must be satisfied.
Old 07-31-2020, 07:06 AM
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My previous neighbor (in PA) was in the same situation. To keep it short, the bank needed to foreclose first before my new neighbor was accepted to buy. They had it listed for sale for over a year before they foreclosed too for the full amount of debt. It was listed for 240K and ended up selling for 179K when it was all done.
Old 07-31-2020, 07:20 AM
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I kind of expected the foreclosure process would have to be completed. the house next door to this one sold about 5 years ago. Owner died a few years later. Was up for sale for about 6 months with the price being reduced a number of times. I guess when the price reduction went to the mortgage balance it went off the market. House sat for a year and was sold at foreclosure. My has his own home at present, so he's in no hurry. I guess we will just have to wait this out and get in the bidding process when the foreclosure is complete.
Old 07-31-2020, 07:54 AM
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only way to know is to discuss with the lender! you would think banks would want to sell and get these properties off the books, however in my area it seems like they just dont care and will let it sit and go to hell, regardless of someone trying to purchase it!
Old 07-31-2020, 04:47 PM
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Originally Posted by Rolandt03 View Post
only way to know is to discuss with the lender! you would think banks would want to sell and get these properties off the books, however in my area it seems like they just dont care and will let it sit and go to hell, regardless of someone trying to purchase it!
My guess on that house is the true market value is less than the amount of the outstanding loan. When they sell, they will have to recognize a loss on the banks book. Until they sell it, creative accounting is used based on the assumption that the market value is at least as much as the loan with no impact on profit.
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Old 07-31-2020, 06:12 PM
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Let it do through foreclosure so the title will be cleared up by the bank. Low ball till you get it or someone else buys it. I’ve put in low offers 10 times a few weeks apart before it’s accepted. It probably needs a good bit of money to Bring it up to today’s standards. If you can’t get it for a good price let it go.
Old 07-31-2020, 09:25 PM
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Unless I’m missing something, you are in a great position with this house and I would buy it in a heart beat if it’s in good condition she’ll let it go for a reasonable price. Before you can get a reverse mortgage on a house, the house has to be owned free and clear with no mortgage. Then the reverse mortgage company will give you monthly payments, while they pay the taxes and insurance, you just have to do routine maintenance on the house. What that statement is saying “foreclosure taxes and insurance, default balance $49,800” simply means to regain free title to the house, she or one of her children or family members must repay the reverse mortgage company $49,800. That number will go up next month according to how much of a payment they give her, plus the interest and if they pay the taxes and insurance monthly or yearly. If they pay the taxes yearly, then the amount will only go up by what they pay her monthly plus the stated interest rate. So, if they are paying her $1000/month at an X interest rate, that $49,800 will go up to $50,800 plus the stated interest rate.

Typically, when a reverse mortgage is set up, the company will do a medical exam on the person and have them go through an underwriting process much like they would for life insurance. The reverse mortgage company is trying to figure out how long that person is going to live so they can determine how long the person will live so they can calculate how much they’re going to give them based on the value of the house. With a house with a $100k value, they may determine the person is going to live 5 yrs, based upon 60% loan to value ratio and give them monthly payments at X% interest. They are taking a gamble the person is going to die before the amount they pay out monthly, plus interest, taxes and insurance exceeds the value of the house.

The house is not in foreclosure, that’s just the way they state the Increasing outstanding balance. If the house is worth $100,000, you have to find out how much she wants to sell for and how much your willing to pay her and you go through a regular closing just like you would any other house. If she agrees to sell you the house for $90,000, at the closing, they would write a check to the reverse mortgage company for $49,800 and she would get a check for $40,200 minus her closing cost and you would get the house free and clear.

What most commonly happens with a reverse mortgage is that the person stays in the house until they die. At that point (using the numbers above), the reverse mortgage company goes to her named beneficiary and says your mother owes $49,800 on the house, pay us off and we’ll give you the title. One of two things happen. 1) Beneficiary pays off the $49,800 and gets a house worth $100,000. 2) Beneficiary says I don’t have $49,800, so the reverse mortgage company forecloses on the house and it goes to auction and sells for $90,000. Reverse mortgage company gets $49,800 plus court cost and attorney fees and beneficiary gets the balance. The reverse mortgage company wins because they effectively made a loan at X% interest and got 100% of their money, plus interest back.

If the person lives longer than the reverse mortgage company expects, then what may happen is the money they have paid out in monthly increments, plus interest, taxes and insurance exceeds the value of the house. They go to the beneficiary and say “the outstanding balance of the monthly payments, plus interest, taxes and insurance equals $115,000....pay us the $115,000 and we’ll give you clear title to the house. The beneficiary says why would I give you $115,000 for a house with a value of $100,000? The reverse mortgage company forecloses on the house, it sells for $90,000...the beneficiary gets nothing, pays nothing and the reverse mortgage company lost as they paid out $115,000 and only get back $90,000 minus court cost and attorney fees.

As I said, it all depends upon what the lady wants to walk away with as to if it’s a good deal for you or not. If she wants $60k in her pocket and the reverse mortgage company wants $49,800 and the house is only worth $100k, it’s a bad deal for you. If she wants $40k in her pocket and the reverse mortgage company wants $49,800 and the house is worth $100k, it’s an ok deal. If the house was worth $100k with a $49,800 payoff, I would be looking to pay around $75k.

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